Say Goodbye to Secrecy for Real Estate Flipping: AB 968 Ensures Further Accountability in Residential Real Estate Disclosures

Say Goodbye to Secrecy for Real Estate Flipping:

AB 968 Ensures Further Accountability in Residential Real Estate Disclosures

On July 21, 2023, California's Governor signed Assembly Bill No. 968 into law, introducing significant changes to the disclosure requirements for certain sellers of single-family residential properties. These new requirements take effect for transactions in which the buyer's offer is accepted on or after July 1, 2024, and aim to provide more protection for buyers who purchase homes from flippers, and ensure that municipalities receive proper building and construction permit fees.

What Does AB 968 Entail?

AB 968 adds Section 1102.6h to the Civil Code, imposing new disclosure obligations on sellers who accept an offer for their single-family residential property within 18 months of acquiring the title. Here's a breakdown of what sellers need to disclose:

1. Room Additions and Modifications: Any room additions, structural modifications, alterations, or repairs made to the property since the seller acquired it, provided these were performed by a contractor.
2. Contractor Information: The names and contact information of the contractors who carried out the aforementioned work.
3. Permits: Copies of any permits obtained for the work. If the permits were secured by a third party, the seller must inform the buyer where and how to obtain these permits.

Why AB 968 Matters

The passage of AB 968 was unanimous, reflecting a broad consensus on its necessity and benefits. The legislation addresses two key issues in the real estate market:

1. Buyer Protection: The bill helps protect buyers by making it easier to understand the scope and legality of renovations. In competitive markets where buyers often have little time to investigate thoroughly, this additional transparency is crucial.
2. Municipal Revenue: By ensuring that all renovations are properly permitted, the bill helps municipalities collect the fees they are owed, supporting local infrastructure and services.

Targeting House Flippers

AB 968 is particularly aimed at house flippers – investors who buy properties, renovate them quickly, and sell them for a profit. While flipping can revitalize neighborhoods, it can also lead to substandard renovations if flippers cut corners. By requiring detailed disclosures about recent renovations, AB 968 discourages shoddy workmanship and encourages compliance with building codes and the permitting processes.

Pre-AB 968 vs. Post-AB 968 Disclosures

Before AB 968, the Transfer Disclosure Statement (TDS) required sellers to disclose the presence of various property components, significant defects, and any unpermitted or non-code-compliant work, among other things. While even under the pre-AB 968 TDS, sellers should have been disclosing all material information regarding the property and the renovations performed, the lack of specificity as to the requirements left gaps:

1. Sellers could avoid disclosing work that complied with building codes but was done poorly.
2. Sellers were not required to identify the contractor(s) who performed the work, making it very difficult for buyers to perform any due diligence regarding the quality of the work. 
3. Buyers had to piece together the property's renovation history from multiple sources, which was time-consuming and complex.

AB 968 fills these gaps by mandating that sellers provide comprehensive information about renovations, including contractor details and permits. This change not only benefits buyers but also encourages higher standards in property renovations.

Practical Implications for Sellers

While AB 968 increases the disclosure burden, it does so in a targeted manner. The requirement to disclose contractor information only applies to work exceeding $500, in line with the threshold for licensed construction work. This means sellers won't need to document every minor repair, focusing instead on significant renovations.

Conclusion‍

AB 968 represents a significant step forward in real estate transparency and buyer protection in California. By mandating detailed disclosures about recent renovations and contractor information, it helps buyers make informed decisions and ensures higher standards in property renovations. For municipalities, the bill helps encourage house flippers to obtain permits and pay the necessary permit fees, supporting community services and infrastructure.

As this new law takes effect, both buyers and sellers should familiarize themselves with the updated requirements to ensure smooth and compliant real estate transactions. If you are unsure about your obligations under AB 968, schedule a consultation with us. 

‍